Merchant Account A Merchant Account is an account that is created so that a business or individual can accept credit cards, debit cards, gift cards and other forms of electronic payment. This is also widely known as payment processing. Online they use an internet payment gateway, such as YourPay, Authorize.NET or Verisign. A Merchant Account provider may be a separate company from the payment gateway. Additionally, for a retail merchant, the terminal dials into what's called a front-end network. They operate in the same manor as an internet gateway. Again, a Merchant Account provider may be a sepeate company from the front-end network. Both the internet gateway and front-end network must be certified to communicate with the Credit Card Processing platform of the Merchant Account provider. Interchange Rates The interchange rate is the rate that Visa and MasterCard distinguish for the processing of credit cards. There are numerous interchange rates that disignate the pricing for things such as corporate purchasing cards, standard credit cards, and rewards cards. For example, if a merchant is using a terminal, targeted at retail pricing, they wish to accept 100% of their credit cards face to face. The retail pricing for a swiped transaction at interchange is 1.54% + $0.10. Again, that is the money that goes to Visa and MasterCard and the issuing banks. Merchants Beware: If anyone comes to you and says that can offer you a 1.49% retail credit card rate, they're LIEING. Reason being is that no Merchant Account provider can change the rates of Visa and MasterCard. (Note that this does not apply for debit card transactions). Note, PayPal, Google Check Out, etc, may seem like the right choice for your business, but when shopping for processing you can get low rates from traditional merchant account providers such as Wells Fargo, First Data, Bank of America and Chase Paymentech. Please also keep in mind that each one works with individual gateways to provide cheaper rates. Make sure you do your shopping. Authorization vs Transaction Most people do not understand the difference here. A merchant can be charged for either the authorization of a credit card, the transaction of a credit card or both. An authorization is done each time a credit card is authorized for a transaction. A transaction only happens when that authorization is complete. For example, a merchant may do 100 transactions for the day and have 10 declines, which would mean he would be charged for either 90 transactions or 110 authorizations, or both, depending on the pricing they agreed to. Pricing Types & Fees Discount With Billback To process transactions, a merchant is charged a fee called a discount rate. The discount rate is a percentage of the dollar amount of the transaction. The discount rate varies, but is based on the business type, the method the transaction is taken (Swiped, Keyed, Internet), and other qualifying factors. This pricing model can be confusing, so let me do the best I can at explaining this. If you have be lead to believe that you're receiving a rate of 2.00%, per your newly aquired information on interchange rates, if you're a retail location swiping credit cards, that means that the Merchant Account provider is receiving the additional 0.46% on top of what ever additional transaction fee's they will be charging you. Now here is the kicker and how this pricing model received it's name. If you're keying in 50% of your transactions, maybe because you take business purchase cards on top of the regular face to face, the interchange rate for corporate cards is 2.20%. The difference between the 2.00% and the 2.20%, will be billed back to you at a rate of roughly 2.60%. So, that 2.00% no longer applies. Some providers even charge an extra 0.50% for surcharges on downgraded transactions. You may find the interchange rates here. Interchange Passthru + Percentage or Per Item The rates that Visa & Mastercard set for processing transactions are passed directly to you. That means you're not hit with any additional fees as they're receiving the straight fees. Now, Merchant Account providers may charge a per item fee for either authorization or transaction or a percentage of the sale. Additionally, they may charge an assessment fee to assess the qualification of the transaction. This pricing model is typically for high-volume merchants. You may find the interchange rates here. Transaction Fees Fee assessed either per credit card authorization, per transaction or both. The rate varies on the average ticket sale and the amount of volume that the merchant is anticipating to process. Additional Fees Additionally, you may be charged for batch settlement, monthly statements, yearly membership, account setup, gateway setup, monthly gateway fees, voice authorizations, Diners/JCB/AMEX/Discover authorization/transaction fees, charge backs, AVS (Address Verification), confirmation letters, funding notification, reporting tools, wireless terminal fees, minimum monthly discount, ACH returns and supplies. Note: Most companies express that they also provide free scrubbing and fraud detection: That's a farse. The number of transactions coming into a processing platform is too large to compare against a database for each transaction. The OFAC (Office of Foreign Asset Control) requires that providers scrub their databases against certain information. Don't think they're doing you a favor. Also: I've seen companies advertise that they have a chargeback defender program or rebuttel system. Again, this is a farse. All Merchant Account companies provide 'information' automatically to aquiring banks to dispute a 'RETREIVAL' which is different from a chargeback. The actual outlet must provide detailed information on a chargeback. Such as receipt of sale, contract, etc. ISO - Independent Sales Organization (Third Party Organizations) Independent Sales Organizations piggy back on the processing platforms of other banks. They sell the banks services' to you in the form of a registered company. Typically, these companies do have direct control over the accounts and have negotiated the rates at which they charge for their pricing. Sometimes, they can be a little higher because they operate as a Third Party. CDG Commerce: Registered ISO for Merrick Bank in Salt Lake City, Utah. Paynet Systems: Registered ISO for Wells Fargo Bank(c). Merchant Express: Registered ISO for Bank of America(c). Cardservice International (MerchantAccounts4Less): Registered ISO for the following: First Financial Bank, Wells Fargo Bank(c). Hope this helps!
Only businesses can have a merchant account. Individuals cannot. Not true. If you understand how Interchange and tiered pricing works it is easy to see how a provider can charge this rate. And if someone wants to charge less then Interchange they certainly can do it. It wouldn't be smart but they can do it. You could have saved a lot of time by simply linking to the Merchant Account entry at Wikipedia.
Individuals can infact have a merchant account. One can even deposit into a personal checking account. Their are many people the operate companies as a sole proprietor. They can do it based on math calculation, correct. For example, if the average ticket is low, by increasing the per item fee charged you could make up the lost percentage on the interchange but realistically, that pricing is not always beneficial. A simple calculation will show the large effective processing rate.
A sole proprietor is still a registered business. It can be done other ways as well without raising the transaction fee. The average ticket price can even be ignored. There are multiple factors at play that affect the merchant account provider's profitability but someone can have a 1.49% rate and have it be completely legitimate.
It just requires an understanding of Interchange. You have to remember that the costs associated with credit card processing are far more complex then what you see advertised and what you sign up for. The costs to the providers is based on a system that breaks them up into almost two hundred different categories each with different costs. If you understand how these break down you can be aggressive with your rates without the fear of pricing it below your cost and even making it very profitable.
Those Interchange rates on that website http://www.shift4.com/ccc_interchange.cfm are out of date. What you want to do is ask for "Interchange Plus" pricing so you get Interchange+Assesments+%. You most likely need to be doing $100,000 a month in transactions to get that... but maybe you can get it for less. See the Interchange Rates & Assessments here: http://www.tax.state.ny.us/evta/download_rate_schedules.htm Transaction World Magazine has the new Interchange Rates up here http://www.transactionworld.com/start.asp See the lower left menu link.
As an ISO you can set whatever rate you want. Technically I could set someone's rate at 1% with no downgrade charges, or any other fees. I would loose money on it, but it is definitely possible. There are quite a few companies that price below interchange. They make up the cost with monthly, yearly, statement, and other miscellaneous fees. Personally I think that pricing like this degrades the entire processing industry because business owners get the wrong impression of the cost of accepting credit cards. Generally this is a better pricing system, but make absolutely sure you know the price is lower than a 3 tiered structure. It is fairly easy for an ISO to hide fees with a cost-plus rate, and I see a ton of businesses get duped by this type of fee structure. Make sure you have a good knowledge of what a good pass-through rate is and a general good knowledge of processing before you agree to one of these rates.
There are very definitely scenarios where a three tier system can save a merchant a lot of money vs Interchange Plus pricing. This is because of the type of cards that merchant accepts. Blending Interchange rates together requires a balance and on either end of that balance is great profitability and great loss for the merchant account provider.
First Data I believe owns www.billmelater.com - have you checked them out? Discover is now grouped with Visa / MasterCard for some ISOs which can be a good thing. AmEx - they set their own set of rules and regulations for the most part.
Thanks Corey. I wonder why my questions disappeared with no explanation? Chase does BillMeLater and you have to do $20 Million annually to apply.
I was thinking actually Bill Me Later® - it might be the same thing since Chase and First Data partner with each other on different aspects
This is the one I have seen and I have talked to the people there about it. http://www.i4commerce.com/i4Commerce/Content.do?pageID=42 I wonder if the 1st data deal is different or maybe they will fix a merchant up that does less than 20M... I will have to talk to them. A lot of my business is Net 30 and it would be nice to have a financial institution float the loan instead of us. Plus they can check credit history faster and easier than we can.
They might be the same - or run off the same backend. I remembered reading some thing s bout it a few months ago in First Data's Stock report but it seems that they all kept the same name for whatever reason.
It is the same, they just pass you to Chase for help. The rep at 1st Data wasn't aware they only do 20M companies are larger though.
Thank you for bringing this to our attention. The rates have been updated to reflect the current interchange rates.
I'm firmiliar with the rates charged at interchange. The fact of the matter is you can effectively charge someone less than interchange, but the cost of interchange is the cost of interchange and someone is paying it. Whether you make up the costs at the specific interchange level or some place else, VISA and MasterCard receive their money. To the gentleman who posted above about the deception of the companies that price below interchange; you're completely correct. This is terrible practice and is only adding to the deceptive nature of this industry.
This shows you don't understand how pricing works. You can offer rates that appear to be below interchange but are not. It's not deceptive at all. In fact, a smart merchant can use this to their advantage. You just have to know how to offer it (and they have to know how to take advantage of it). I'd love to tell you how to do it but as you can obviously see it is a competitive advantage.
In my experience shopping for credit card processing services, a qualified rate that is below interchange is usually made up for with a huge markup on the mid-qualified transactions. Rewards cards, which are usually bucketed into mid-qualified, only cost ~30 bps more in interchange but can often be marked up by 100bps or more. In my experience it is not true that 3-bucket pricing can be better for the merchant than interchange. I once negotiated such a rate, which I knew was unprofitable to the merchant account provider. Sure enough, when my first bill came they had added an extra per-item charge. When I complained about it they said they would fix it but it never got fixed. When I complained again they said that they couldn't afford to fix it because they would lose money on it if they did. So I left. I understand that they need to cover their costs but I don't like being lied to. I prefer the transparency of interchange plus pricing, for my business.